ICRA Lanka upgrades Asia Asset Finance credit rating to (SL)A-amidst pandemic conditions

AAF Director and Chief Executive Officer Rajiv Gunawardena

AAF Chief Operating Officer Roshan De Silva Gunasekera

Asia Asset Finance (AAF) PLC’s issuer rating was upgraded by ICRA Lanka Ltd., to [SL]A- from [SL]BBB+, an important benchmark of credit quality for partners and customers.

AAF is a 73% owned subsidiary of Muthoot Finance Ltd. (MFL), which is the largest gold loan finance company in India and the global giant in the gold financing business.

In a statement MFL said it has demonstrated a track record of providing both financial and operational support to AAF since the company was acquired by MFL in 2014 and the rating also takes into account both the ability and willingness of the parent entity to provide capital support on a timely basis, going forward. It added the upgrading of rating affirms the financial stability of the company. The Issuer Credit Rating is an important benchmark of credit quality for all the stakeholders including internal and external customers who trade with the company. 

Director and Chief Executive Officer Rajiv Gunawardena said: “AAF, re-positioning of its business strategies has resulted in providing material benefits for the company. The A- rating upgrade is a testament to the robustness of our business model. We have aligned our business operations to match the operations of our parent company Muthoot Finance, which is one of the most profitable NBFIs in India. This success is now reflected in AAF with a strong performance during the year and improved asset quality to strengthen our balance sheet. The geographical expansion during the year has ensured that we have created a platform to cater to our customers much more efficiently and effectively, overcoming the challenges of the pandemic.”

AAF completed a rights issue of Rs. 414 million in August 2021 in the form of preference shares, which resulted in an improvement in AAF’s tangible net worth to Rs. 2.67 billion as of September 2021 which was higher than the minimum regulatory requirement of Rs. 2.5 billion to be met by 31 December 2021. The upgrades also consider the improvement in the overall portfolio quality of AAF, with its shift away from unsecured lending to secured products such as Gold Loans.

Increasing exposure to asset backed lending is expected to further support the asset quality of AAF. As of September 2021, AAF’s gross portfolio stood at Rs. 14,564 million vis-à-vis Rs. 14,026 million in March 2021. As of September 2021, Gold Loans accounted for about 57% of the total portfolio, while the management intends to further increase its Gold Loan exposure over the medium term.

The company said ICRA Lanka took cognisance of the relatively low credit risk and higher liquidity of these Gold Loans while taking note of the vulnerability to market risk stemming from gold price fluctuations. ICRA Lanka also noted AAF’s fairly diversified funding profile consisting of retail fixed deposits, debentures, term loans from banks, and securitised borrowings.

“It’s very encouraging to see our progress on AAF’s transformation recognised, once again, by a leading rating agency,” said AAF Chief Operating Officer Roshan De Silva Gunasekera. “These upgrades reflect that our strategy is the right one and that we are executing it well. More importantly, improved ratings enable us to do more business with our clients,” he added.

AAF also said it continues the expansion drive, inaugurating its 50th branch in Maskeliya recently, with plans to inaugurate 12 more branches in the Central Province over the next two years. AAF is focused on cementing its reputation as the most trusted gold loan financing company in Sri Lanka and evolving into the leading financial service provider in the country